Update from our Investment Commitee

Update from Nathan Woods, head of The Trust Company’s Investment Committee, about the Markets’ recent activities and how we’re keeping your best investment interests in mind.

Transcript:

Nathan Woods, Head of the Investment Committee at The Trust Company here to give you an update on recent stock market activity.

What we are doing about that activity at The Trust Company, and what it means for you

Recently more investment concern in the financial markets has simultaneously led to more trading in those financial markets, which ultimately leads to more swings in the individual prices of stocks. In fact, since the end of 2015 we’ve seen an average daily trading volume in the stock market increase more than 30%. That’s billions of individual stocks being traded, bought and sold each day. The VIX – an index that measures volatility – continues to increase so we aren’t surprised to have these wild swings in the market. In fact, it’s been known and been referred to as a pull-the-trigger-and-ask-questions-later kind of market. While we don’t agree with that, many investors hear these things and we want to be aware of them. Year to date, The DOW and the S&P 500 are down more than 9%, while the NASDAQ has fallen more than 11%. Investors, because of this, have flocked to safety further pushing down the US Treasury interest rates to below 2% and also caused gold to rise.

Asian stocks closed lower with the China/Shanghai index now entering bear market territory. A bear market is a market in which the returns have fallen by more than 20% since their highs, and this is what China has realized just since late December. Long story short, in 7 of the past 11 days the DOW has fallen more than 1%. The last time this happened? March 2009. Of course, March 2009 was the month the Great Recession Market hit its bottom. Beginning the next month we’ve seen and over 200% point increase in markets.

At The Trust Company we work with clients to invest their portfolios in two ways: The first way is through strategic asset allocation, and this is the weighting between stocks and bonds in a portfolio. Younger investors or riskier investors may choose to have a majority stocks. While older or more conservative investors want a larger allocation to bonds. This is what we work to determine – the risk appropriate level of that allocation. How many stocks verses how many bonds. Also, the way we invest is through Tactical Asset Allocation. By choosing different asset classes and weighting them differently within a portfolio. This is when you hear us discuss Large Cap Growth or Mid-Cap Value, Emerging Markets or Small Caps, and numerous other assets classes.

What are we doing about the market?

First, obviously we are communicating with our clients. We want to make sure they know we are aware of the volatility, and even if our clients aren’t aware of it, we want to make sure they are abreast with the information when the need arises. Secondly, we are assessing our client’s risk tolerances; Making sure that if they had a portion in stocks and a portion in bonds that that portion is still prudent for the long term.

Many times, as the market rises, investors love stocks because they’re rising the quickest, but in times like we have seen recently, in market declines, those same investors may be scared away from stocks. So we want to make sure to choose that right asset allocation for the next business cycle, for the next few years, potentially for the next few decades.

The last thing we are doing is utilizing the declines in recent equity markets to purchase undervalued assets. Bonds have outperformed year to date. So in many cases we’ll sell bonds and buy more assets/equities to capitalize on those declines. Think of this current phase in the stock market as a corrective phase in a bull market. This is what we have now: we have healthy corporate balance sheets. Corporations have lots of cash, lots of assets and are doing stock buy backs, expansions. We have increasing job numbers and increasing housing numbers and starts. Just as we heard recently. Finally, oil prices have continued to fall something that has also driven recent market declines. In fact oil recently settled for less than $30 a barrel. The first time it has been this slow in twelve years. While, yes, lower oil prices hurt oil companies, they hurt those employees that work for those oil companies, and the investors in those. Ultimately, lower oil prices means more money for consumers. There’s lots of news everywhere that can be read as negative or positive.

If you’re worried, or even if you are not, contact your trust company advisor for help seeing through the static.